Measure 66: Raises state income taxes on high-income residents
from 9 percent to as much as 11 percent, matching the highest state
income tax rate in the country. The high-income rate drops to 9.9
percent in 2012.

Measure 67: Is aimed at business, raising the state's corporate
minimum tax to $150, or as much as $100,000 for large companies with at
least $100 million in annual revenue.

Combined: The measures should add an estimated $733 million
annually to the state's general fund.

The young CEO runs a successful technology company southwest of Portland employing hundreds and boasting a bright future. But if the executive has his way, he'll be moving the company out of Oregon this year or next.

The passage of tax Measures 66 and 67 has convinced him a better, more profitable future lies elsewhere.

"I'm happy to pay taxes," said the executive, who asked that neither he nor his business be identified. "But the Oregon system is broken, and I know there are a lot of other businesspeople who feel like I do, that it doesn't make sense to stay."

Oregonians voted in January to extract an additional $733 million a year in new taxes from business and high-earning individuals. The election results, and the bruising campaign that preceded them, have some influential voices in Oregon's business class simmering with discontent.

In response, states including Idaho, Montana and Ohio are on the recruiting offensive, taking dead aim at Oregon businesses. They could well find a receptive audience. Conservatives and moderates alike bemoan the message sent by the tax hikes.

"Oregon's economy is already on the wrong side of the tracks," said Roy Tucker, managing partner of the Perkins Coie law firm in Portland. "The last thing we need is one more reason for entrepreneurs to decide not to do business here."

Measures 66 and 67 "established battle lines that did not need to be drawn," added Portland venture investor David Chen. "The damage is not monetary in terms of the increased taxes. The far greater damage is in how it disenfranchised business."

View full sizeMichael Lloyd, The OregonianOregon Gov. Ted KulongoskiOregon Gov. Ted Kulongoski is scrambling to contain the fallout. He's convinced that even after the passage of Measures 66 and 67, Oregon imposes one of the smallest tax burdens on business in the nation.

"I understand this is an emotionally charged issue," said Kulongoski, a Democrat. "I've met with people who are very upset with the insinuation that somehow they weren't paying their fair share.

"Once the passion of the moment passes, I am absolutely confident that Oregon is competitive with any state."

But if the tax load on business in Oregon remains relatively low, many of those business owners also face a new personal income tax rate that is among the highest in the country. It's the double-whammy nature of the tax hike that has some incensed.

"The governor is both right and wrong," retorted John von Schlegell, the influential head of Endeavour Capital, a Portland-based private equity fund. "What he and his cronies miss is, like it or not, the fat cat entrepreneurs are the ones that run companies, give to philanthropy, do angel investing, and create most of the jobs."

Those leaders, von Schlegell contends, were paying 25 percent of the state's tax revenue, a number that now could reach 30 percent.

"Even if some objective measure of all business taxes and fees says that Oregon is relatively fair, it's not fair to the people who control the jobs and pay all the taxes," von Schlegell said. "And they are the ones moving, and moving their businesses."

"Fiscal irresponsibility"

The bitter tone of the debate must be music to the ears of Idaho Gov. C.L. "Butch" Otter, who issued a pugnacious open letter earlier this month inviting Oregon businesses to flee the state.
Joe Jaszewski/The Idaho
StatesmanIdaho Gov. C.L. " Butch" Otter Otter said Oregon political leaders made maintaining government programs a priority over the health of the economy.

"The problem in Oregon is that folks were convinced that state government was what needed to be shored up rather than the jobs and revenue-producing private sector for which state government is supposed to work," Otter wrote in his March 8 letter. "As a result, they're chasing some of their cash cows to the border. And I welcome those businesses with open arms."

Donald Dietrich, director of the Idaho Department of Commerce, said his agency has heard from more than 10 Oregon companies seeking details on how they would fare under Idaho's lower personal income tax rate and property tax rates.

"People in Oregon are just fed up," Dietrich said. "... I feel confident we're going to have some defections."

Montana, Ohio, Chicago and, most recently, Utah, have joined the parade of recruiters trying to poach Oregon businesses.

Tim Boyle, CEO of Columbia Sportswear, met with Chicago Mayor Richard Daley earlier this month while in Chicago to open a new retail store. The genial Boyle, who in recent years emerged as an acerbic critic of local government, said he liked what he heard from Daley.

"It's nice to meet with a guy who says he wants jobs," Boyle said.

Boyle politely declined Daley's offer to move Columbia to the Windy City. The company is not looking to move, at least not now. Columbia will feel a minimal impact from the new corporate sales tax imposed by Measure 67, as its sales are spread all over the globe, Boyle said.

"We're not shopping" for a new location, Boyle said. "We have a lot of employees who grew up with the company in Portland," Boyle said. "A move would obviously be very disruptive. But it's also disruptive to see the kind of fiscal irresponsibility we see in the city."

Portland Mayor Sam Adams didn't respond to requests for comment.

Washington tax haven

It may take months, years even, to see if the talk of business relocations is real. Moving a company can takes months or years of planning.

But it's a much simpler process for an individual to move, particularly when an inviting tax haven sits on the northern bank of the Columbia River. For those in Oregon's upper income bracket, who are looking at a 20 percent increase in their state income tax, Washington's income-tax-free zone looks increasingly inviting.

Harley Roberts and Pat Richardson, two veteran Portland accountants, said they have seen an uptick in clients asking them to run the numbers on how their tax obligation would change in Washington.

Successful Portland executives have for years been moving to Clark County in search of a lower tax bill. The stigma of walking out on their home state is pretty much gone.

"I think a lot of them feel like their state walked out on them," Roberts said.

Not everyone agrees, even within the business community.

Portland accountant Dick Solomon said the tax refugees need to remember that it was Oregon's publicly funded institutions that educated the employees and built the infrastructure that helped their companies prosper.

"To ask the people who have really benefited from the tax cuts of the Bush administration to give a little bit back to the state when the state is hurting, I don't think that's so unreasonable," Solomon said. "Unfortunately, you're asking a small group of people to furnish the money."

As the debate rages, some executives fear that Measures 66 and 67 could be just the beginning. The state faces an even larger budget deficit -- $2.5 billion by most accounts -- in the next biennium.

On this issue, Kulongoski said the executives' concerns are well-founded. The recession has taken such a large bite out of the state's economy and, therefore, its tax receipts, there's no easy path to recovery.

Kulongoski lamented the Legislature's refusal to consider reforming the state's kicker law, which makes it difficult for the state to establish a reserve.

"I'm as concerned about that as the business community," Kulongoski said. "That's why I wanted the kicker reform. We needed to build a rainy day fund so that when we need more revenue, we have the reserve."

The young CEO pondering a move out of Oregon agrees with Kulongoski that killing the kicker would be a good first step toward wholesale tax reform. "The kicker is madness," he said.

But when the next budget gap reaches the crisis point, it also would be madness to single out business, he said. "You're going to flush everyone out of the state who pays taxes."